The Brick Group Income Fund
TSX : BRK.UN

May 11, 2009 09:06 ET

The Brick Announces $10 Million Increase in Offering to $120 Million

EDMONTON, ALBERTA--(Marketwire - May 11, 2009) -

NOT FOR DISTRIBUTION THROUGH U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE U.S.

The Brick Group Income Fund (the "Brick" or the "Fund") (TSX:BRK.UN) is pleased to announce that due to strong investor demand for its recently announced offering of debt units (the "Offering"), the Brick has increased the size of the Offering by $10 million to an aggregate of $120 million. The increased Offering size substantially enhances liquidity to over $30 million.

"We are very pleased with the strong demand investors have shown for our offering and felt that increasing the size of the Offering was a prudent measure to increase the Brick's financial flexibility. The additional $10 million of gross proceeds further enhances our liquidity position and provides our suppliers and customers with an additional level of comfort in the Brick." said Kim Yost, President and CEO.

In addition to repaying all of our existing senior debt with this recapitalization plan," said Nick Bobrow, Chief Financial Officer, "as a result of the additional $10 million of gross proceeds, we expect to have approximately $34 million of immediate liquidity following closing of the recapitalization transaction."

The Offering will now comprise a public offering of up to $30 million in each of the provinces of Canada pursuant to a short form prospectus (the "Public Offering"), and a $90 million private placement to accredited investors under an exemption from the prospectus requirements of applicable securities laws (the "Private Placement"). As a result of the strong investor support, it is the Brick's expectation that the stand-by commitment to purchase any unsold portion of the Public Offering by Fairfax Financial Holdings Limited ("Fairfax") will not be required.

The Fund has filed and received a receipt for a preliminary short form prospectus in connection with the Public Offering in each of the provinces of Canada. The Fund intends to file an amended preliminary short form prospectus in connection with the $5 million increase to the size of the Public Offering. As previously disclosed, it is anticipated that the closing of the Offering will occur on or about May 28, 2009. The Public Offering is being led by RBC Capital Markets, together with a syndicate of agents that includes CIBC World Markets Inc. and GMP Securities L.P.

Under the increased Offering, Fairfax and William Comrie ("Comrie"), the Fund's two largest existing unitholders, are to invest $45 million and $20 million under the Private Placement, respectively, and two other institutional investors are to acquire an additional $25 million of the Private Placement. As of the date hereof, Fairfax and Comrie own 8,380,200 and 21,561,983 class A trust units ("Class A Units"), respectively, representing approximately 15% and 40% of the outstanding Class A Units, respectively, on a fully diluted basis. Following Closing and taking into account the increased Offering size, Fairfax and Comrie will own $45 million and $20 million principal amount of Debentures, respectively, representing approximately 38% and 17% of the outstanding principal amount of Debentures, respectively, and assuming the exercise of all Warrants (but not the exercise of the stand-by commitment of Fairfax), will own 53,380,200 and 41,561,983 Class A Units, respectively, representing approximately 31% and 24% of the outstanding Class A Units, respectively, on a fully diluted basis. Although it is not anticipated that the stand-by commitment of Fairfax will be required, Fairfax's ownership position could be substantially higher in the event of the exercise of all or a portion of its stand-by commitment. Assuming the exercise of the stand-by commitment of Fairfax in full, Fairfax would own $70 million principal amount of Debentures, representing approximately 58% of the outstanding principal amount of Debentures and Fairfax will own, assuming the exercise of all Warrants, 78,380,200 Class A Units, representing approximately 45% of the outstanding Class A Units on a fully diluted basis. Accordingly, assuming the exercise of all Warrants (particularly upon the exercise of the stand-by commitment of Fairfax in full), Fairfax may be in a position to materially impact control of the Brick. Following the Closing, if insiders were to act together, including Fairfax and Comrie, or Fairfax alone, they may be in a position to either pass or block votes of holders of Debentures, Warrants and Class A Units.

A committee of trustees of the Fund free from interest in the recapitalization transaction and unrelated to the parties involved in the recapitalization transaction has recommended, and the board of trustees of the Fund has approved, having regard to the $110 million fully committed financing, the increase in the size of the Offering by $10 million and concluded that (i) the Fund is in serious financial difficulty; (ii) the increase in the size of the Offering by $10 million is designed to improve the Brick's financial condition; and (iii) the increase in the size of the Offering by $10 million is reasonable for the Brick in the circumstances.

The Fund has applied to the TSX for an exemption from the requirement to seek disinterested unitholder approval for the Public Offering and the Private Placement including the increase in the size of the Offering by $10 million (which would otherwise be required due to (i) the number of Class A Units potentially issuable pursuant to the exercise of the Warrants; (ii) the exercise price of the Warrants is at a discount to the market price of the Class A Units; (iii) insiders of the Brick are acquiring Warrants exercisable for Class A Units representing greater than 10% of the issued and outstanding Class A Units; and (iv) the recapitalization transaction could materially affect control of the Brick) pursuant to Section 604(e) of the TSX Company Manual on the basis of the Fund's financial hardship. The Fund would otherwise be required to obtain disinterested unitholder approval for the recapitalization transaction, excluding the votes of subscribers under the Private Placement, in aggregate accounting for 29,942,183 Class A Units. Closing of the recapitalization transaction is conditional on receipt of an exemption from the TSX from the requirement to obtain unitholder approval. The TSX has advised the Brick that reliance on this exemption will automatically result in a TSX de-listing review to confirm that the Brick continues to meet TSX continued listing requirements. Management believes that the de-listing review is a routine procedure when using this exemption and the Fund currently complies with applicable TSX listing requirements and expects to continue to comply with such requirements following completion of the recapitalization transaction. After giving effect to the Public Offering and the Private Placement, 174.2 million Class A Units will be outstanding on a fully diluted basis, representing a 221% increase over the current 54.2 million Class A Units outstanding.

The Brick is also relying on the financial hardship exemption from the requirement for a formal valuation and minority approval contained in Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions in connection with a related party transaction.

Unfortunately, despite previously announced proactive measures (such as reducing, and then suspending, distributions and revising the financial covenants of the Brick's senior secured credit facilities and senior secured notes), the continued deterioration of economic conditions and the resulting impact on the Brick's financial results over the first quarter of 2009 has severely constrained the Brick's liquidity. On the basis of these difficulties and the limited prospects for any near-term improvement in economic conditions, the Fund determined that the recapitalization transaction was necessary and advisable to provide confidence to the Fund's customers and suppliers and allow the Brick to continue operating for the foreseeable future. In addition, although the reaction of the Brick's suppliers following the announcement of the recapitalization transaction was positive and many agreed to improve credit terms provided to the Brick, management believes it is prudent to increase the size of the Offering by an additional $10 million to provide further comfort to suppliers and provide the Brick with additional liquidity that will assist it in its efforts to negotiate improved credit terms with more of its suppliers.

This press release is not an offer to sell securities in the United States. The Debentures and Warrants have not been and will not be registered under the United States Securities Act of 1933, as amended, (the "U.S. Securities Act") or any state securities laws, and may not be offered or sold within the United States except in transactions which are exempt from the registration requirements of the U.S. Securities Act.

About the Brick

The Brick, together with its subsidiaries, is one of Canada's largest volume retailers of household furniture, mattresses, appliances and home electronics, operating under five banners: The Brick, United Furniture Warehouse, The Brick Superstore, The Brick Mattress Store, and Urban Brick. In addition, through its corporate sales division, the Brick services the subdivision, condominium, and high-rise builder market. The Brick's retail operations are located in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Prince Edward Island, Nova Scotia, New Brunswick, and the Yukon Territory.

Forward-Looking Statements

This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws, including (but not limited to) statements about the anticipated impact of the recapitalization transaction on the Brick, the financial flexibility and capital resources necessary to manage the business in the current economic environment, and similar statements concerning anticipated future events, results, circumstances, performance or expectations, that reflect management's current expectations and are based on information currently available to management of the Brick and its subsidiaries. The words "may", "will", "should", "believe", "expect", "plan", "anticipate", "intend", "estimate", "predict", "potential", "continue" or the negative of these terms, or other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking matters.

Reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Brick to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to, the risk that relationships with suppliers (including the availability and terms of supplier credit) fail to improve as expected or deteriorate further, that costs may be difficult to manage and that availability under the Brick's new asset-based credit facility may be less than expected and those risks and uncertainties detailed in the section entitled "Risk Factors" in the Brick's Management's Discussion and Analysis, Annual Information Form, preliminary short form prospectus dated May 6, 2009 filed in connection with the Public Offering and in other filings on www.sedar.com. These and other factors should be considered carefully and readers are cautioned not to place undue reliance on these forward-looking statements. The Brick undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable law.

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